In tone , the document ranges from the eulogistic to the mundane. It trundles along in the middle lane, it is not a document that is designed to disturb Royal London’s management. The copy I received had been issued to the press under embargo and the first I heard of it was from a journalist asking me what he should be interested in .

I said – blindly that the report should be judged on three matters

The position the IGC was adopting to value for money, and in particular, the assessment of value for money benchmarked against best practice

The tone of the document, especially whether it demonstrates it is written for members (rather than to please those who pay the IGC’s bills or the Regulators.

Its capacity to address specific issues with the provider where member’s issues might be prejudiced

Despite the enthusiastic welcome given to the report by Steve Webb, Royal London’s pensions front man, I’m not sure that the document wholely succeeds in any of the three matters

Where Green sees red on VFM

Philip Green, the chair of the IGC , gives Royal London a green (for good) on all measures but a red for benchmarking the information against “common standards developed and agreed by industry bodies and the regulator”. To me the red renders the greens invalid. If there is no means by which the information given by Royal London on “value” and “money” can be judged, how can the judgement of green on all counts have been arrived at.

Royal London are held to be blameless by (Philip) Green despite being given a “red”

“The description of this principle status as red is not a failing on the part of Royal London. It reflects that during 2015, common standards (and hence the ability to effectively benchmark) were not available”.

The IGC will, according to Green,continue to press the industry and regulator the case for common standards that can be applied and benchmarked effectively.

Frankly the policyholders of Royal London can expect more than this. If Royal London are not to blame, nor the Royal London’s IGC, then it is everyone else. It would be better to admit that both Royal London and the IGC are part of the failure to find a way to measure value for money against benchmarks, the greens are meaningless and actually misleading.

So on VFM I give the IGC a low score – let’s call it a red!

Tone

Despite claims to be written in the language of the common man, the dread touch of Royal London’s marketing department is all too obvious

2.0 “Royal London has been providing solutions for the workplace pension market for many years”

3.2 “The cost of the technical input and overall governance provided by the IAC is included in the overall charges paid by Royal London Customers. This means that customers benefit from a strategic review and oversight of the funds to a degree that wold be difficult to achieve on their own”

These examples from the report are indicative of a lack of rigour in the Chairman’s statement that is alarming. In the first statement (2.0) there’s acquiescence to marketing speak suggesting that cut and paste was at work – did Philip Green really use the phrase “workplace pension solutions”?

In the second example there is a breakdown in logic typical of insurance company group think. We are asked to believe that because Royal London’s Investment Advisory Committee is being paid for out of customer’s funds, customers are getting something they couldn’t get for themselves. This is neither logical nor rigorous, it is just gibberish.

There are other examples of group think in the document and far too many insurance company formulae “in aggregate” “increasing the overall level of fairness” “in certain contracts in certain circumstances”. In short the tone of the document falls rather short of the Chairman’s claim for it but it does at least try, I give the document an amber for tone.

Addressing specific Royal London issues

It’s good to see that 27.100 of Royal London’s 576,900 policyholders will be better off from 2016 as a result of improvements in charging structures (some by up to 20%). There was ample scope for improvement in the legacy plans of Phoenix and CIS and some of the Talisman plans sold before Stakeholder came along. Credit is due here.

On the “not so good side”, I note with disapproval that the IGC has given a clean bill of health to Royal London’s policy of paying IFAs commission to the last moment (next month) while many of their rivals had turned off the tap long ago. I do not consider the majority of this commission earned by any advice given and do consider these payments an unnecessary inducement to IFAs not to adapt to the RDR. If Royal London are to convince me they are really on their member’s side, they’ve got to stop putting the IFAs before their membership.

There was a clear reason to turn off the tap, the AE charge cap meant that the costs of commission could not be met from the policies so IFAs were being rewarded from general members funds, the kind of cross subsidy criticised elsewhere in the report. The IGC had the opportunity here to at least be consistent – it failed – it should not have let Royal London off this hook.

There are other issues which the report skates over. Why do Royal London operate 15 pension defaults? How can that be in the member’s interest.

The report makes play of Royal London’s mutual status (and the advantage of sharing profits generated with the members. It does not ask any questions about the remuneration of the Board and , since there is no formal reporting as there would be to a shareholder, the payments to Phil Loney (CEO) and others go unchallenged.

In terms of how the report addresses the specifics of Royal London, I give it an amber.

Overall judgement – the wrong side of amber

I wouldn’t call this IGC report a train crash, but I’m not very impressed by it. It isn’t a good read, it’s full of insurance company- isms. The IGC have clearly spent a lot of time with Royal London and appear to have nudged them on their way to improve legacy contract charges. But there is insufficient challenge here to suggest that the member is really being looked after and on the big issue of Value for Money, the report is pretty poor.

Still, they were the first that ever burst – into that silent sea. I hope that we will see better reports but I fear we will see worse!

I’ll be doing further blogs on each major IGC as each reports and I hope to do a master scorecard marking my reds greens and ambers at the end of the reporting season.

As always, my views are my views alone, but since I don’t expect that many others are going to read these documents, I hope my views will engage a few, educate a few and empower a few to hold these IGC’s feet to the fire!

2 Responses to Royal London’s IGC kicks off reporting

How long before there is a need for an Independent Governance Committee to keep an eye on IGC’s! Thank you Henry for volunteering in the meantime. By the way is there an association of IGC’s yet? just a matter of time.
Keep up the good work.

Its worth noting that the IGC is NOT the Investment Advisory Committee (IAC) that oversees the asset allocation of what were the Scottish Life pension funds. The IAC has been in place for well over a decade and the guidance it gives to RL is robust and independent. They’ve recommended a third party fund manager is replaced and RL acted on this. The process is, from what I can see, the best of any Insurer / Master Trust. Our Regulated business has used them for AE and will continue to do so.

RL / Scottish Life have always said that there is no direct charge for the services of the IAC and given AE contracts have an AMC of no more than 0.75% I would tend to believe it. I can’t see how a policyholder could get this service themselves, except at an explicit charge.

Why do they have 15 Default funds?

I for one would MUCH rather have a choice than just be stuck into one static “lifestyle” fund. My understanding is that if there is no investment guidance from an IFA ( and RL don’t take direct new business) there will be no choice of default. I’ve raised this previously – how can a Provider with zero fund choice be considered appropriate? I view the choice of 15 options ( and they’re not actually funds, but a sophisticated form of lifestyling with numerous funds used) as being extremely useful.

Declaration of Interest: I worked for Scottish Life for eleven years as a Senior Consultant.